Strategic management in SMEs – a theoretical approach

Management processes in a SME is different from the common and rational business logic, that doesn’t mean that there’s no logic behind the organisational and managerial processes in a SME.

It is just another form of logic that is complex and can be difficult to explain from a common business rational. The different aspects of growth and size of SME will be discussed and will lead to the Chaos Theory that can explain some of the different aspects of this phenomenon.

Furthermore this section will have theoretical approach and analysis the different theories put forward concerning management of SMEs.

A company’s growth

A company’s growth and development from a small to a large company is characterised through different phases and include; Start-up, Expansion, Maturity, and Diversification that are connected to the company’s age and size¹⁰⁹. According to Greiner¹¹⁰ a company’s development is

108 Shane & Venkataraman, 2000

109 Heldbjerg & Nielsen, 2004

110 Greiner, 1972

very much like a human’s and follows a predetermined development. A company follows different periods starting with a so called Evolutional period characterised by stabile growth followed by a so called Revolutionary period characterised by crises. The Revolutionary period is the period where there is need for a strong leadership and innovation in order to overcome the crises and move the company forward. Thus a company’s development must be understood as there will a good period, which will be followed by a less good period and that is when a company and it’s leadership have to act decisive in order to survive.

The metaphor of SMEs as a living organism has been challenged by Morgan¹¹¹ that believes SMEs should be considered as a special type of companies that have fundamentally different managerial and organisational processes and cannot be compared to larger and complex companies.

Size of company

According to Heldbjerg and Nielsen¹¹² many of the companies that keep being very small and show no growth have some of the same characteristics in the leadership style. They have a leadership style that indicates that the company does not have motive or desire to grow or that the company owner has difficulties to accept the consequences of the transition from the creative responsibilities to the managerial responsibilities. Therefore the companies are kept small and no further growth is shown¹¹³. If argued from a life cycle perspective as Greiner’s earlier argument it can be said that the owner or leader deliberately keeps the company small in order to have a stabile, familiar and reliable development. Thereby the company will be kept in a safe and well-known framework. It can further be described by Heldbjerg & Nielsen’s argument that the owner or leader’s understanding of the company is that growth is not a must that must be achieved by all costs. They rather have a different rational basis that are funded in their beliefs, emotions, and values.

111 Morgan, 1980

112 Heldbjerg & Nielsen, 2004

113 Heldbjerg & Nielsen, 2004

Reasons behind lack of Growth

In the late 1980’s and 1990’s the discussion concerning SMEs and newly started companies was put on the agenda among the politicians and researchers. The general belief was that the reason for lack of growth was not lack of intention or desire from the entrepreneurs’ side but rather the business economics and socio-cultural barriers that were present in the society. In order to overcome these barriers, the solution was political initiatives and that the entrepreneurs needed to make a better use of the public and private consultancy agencies available. These thoughts and reasoning were based on earlier British researches from the 1970’s that were usually used as the fundament for the researchers arguments. It can be criticised that there hasn’t been made any fieldwork where the entrepreneurs have been asked about their thoughts and how they perceive the situation. Thereby the researchers and others could maybe get a better understanding of their situation and their expectations and come up with new and better solutions for how to improve the entrepreneurs’ situation¹¹⁴. This is what has been tried in this project; by talking to the designers and other stakeholders in the Danish fashion industry it has given a more nuanced understanding of the situation and given an insight to the multidimensional problems that needs to be addressed.

Chaos Management

Chaos theory is formally defined as “the study of a-periodic behaviour in nonlinear dynamic system”. It stretches across several disciplines such as, metrology, geology, chemistry and economics¹¹⁵. Here Chaos Management will be used, which has its roots in Chaos theory. Chaos Management is to be understood as management of a complex system that does not allow fixed rules and limits. The challenge for a manger is to manage within this framework¹¹⁶ that is very difficult to define from the prevalent management theories.

Chaos is normally linked to unpredictable and uncertainty which the strategic planners try to avoid but regarding SMEs chaos should rather bee seen as a term that explains the complexity and turbulence that some how can explain the disorder to order. Or it can also seen as a way to

114 Evald, 2004

115 Moore, 2006

116 www.init-institut.de/glossar.htm

explain the things that cannot bee seen with the naked eye¹¹⁷. Therefore it can be argued that it is very difficult to explain and outline the SMEs business strategy and future development.

This leads to understanding of Chaotic Management, which is a phrase that is very fitting when describing management and strategy plans in SMEs. The decisions and plans made are not made through rational and traditional business thinking but rather better understood when seen through the Chaos Management theory¹¹⁸.

The prevalent understanding of organisation management is based on rational business planning where long term goals and action plans are made and where allocation of resources are taken with the objective to enhance the company’s competitiveness. The strategy is core for the company and their future competitive advantages. Nevertheless there has been a shift of understanding regarding the understanding of business management and the dynamics surrounding it. The world of business is not arranged, rational, and predictable but rather dynamic and in constant change, which challenges the business and present them with hostile and turbulent surroundings. The challenge for the business’ are to act quickly and flexible and thus there are different approaches on how to manage and act in the situation¹¹⁹. This is specially the case regarding SMEs and their behaviour in business situations. According to Brytting¹²⁰ there are fundamental differences between SMEs and larger companies and the traditional business management understanding is not applicable to the SMEs. It is a complex situation that is influenced by unpredictable and personal tendencies. In SMEs the use of plans are not seen as important or necessary and also the lack of time to make such plans plays a great factor¹²¹. Following this line of argument, it can be said that it is the manger’s personal ideas and beliefs that can explain their behaviour and strategic decisions. The ideas are usually intuitive and morally grounded and are usually not analytically supported and therefore not viable for prevalent measurements and scheduling.

117 Hancock, 2004

118 Hancock, 2004

119 Hancock, 2004

120 Brytting, 1991

121 Schrader et al., 1989

Moreover, the prevalent thought is that an understanding for development and implementation of business plans are matured incremental during time. That is not necessary the case for SMEs that fundamentally have to be able to be flexible and able to move with the market development.

Therefore the Chaos theory considers that things not only move forward but that it also, due to unexpected situations, can move backwards. The Chaos theory researchers agree that long term and strategic planning is ineffective in chaotic environment, which usually characterises SMEs¹²². Stacey underlines this idea by saying “ if one accepts the premise that all the dynamic of success is chaotic….all forms of long term planning are completely ineffective”¹²³.

In SMEs it is the ideas and thoughts of the manager/owner that is the base for decisions and activities is founded in the experience, intuition, creativity, and insight that the manager may have. This again makes it difficult to explain the SME development with common organisational theory. The intuitive decision making, makes it possible for the manager to come up with some new ideas and unconventional methods. But this flexible decision making process can also be regarded as a double-edged sword that can make it difficult to find stability. In an effort to reach stability it can lead to the opposite, an unstable situation, since the situation that is tried adjusted to is in constant change¹²⁴.